The stablecoin train may be leaving the station, Congress is finally beginning to scramble, in hopes of jumping aboard. Are they bringing the proper tools for the trip? Current legislative efforts, while well-intentioned, risk throwing the baby out with the bathwater, stifling innovation and harming the very people they're trying to protect. We need a course correction, and fast.
Don't Cage Dollar Dominance, Unleash It
In short, stablecoins are not another crypto gimmick, they are a much-needed upgrade to the crumbling plumbing of our financial system. Think of it like this: the internet was initially met with skepticism, even fear. Now, imagine life without it. Smartly designed stablecoins can speed up payments, increase efficiency and lower costs and yes, increase the dollar’s global dominance. To do that, we must incentivize innovation, not strangle it in red tape. If we don’t take bold, smart action now, we will lose the opportunity to shape the future of finance. Here’s why other countries might be able to beat us to it.
Stop The Foreign Tether Black Hole
Let's be blunt: the biggest hole in current stablecoin proposals is the Tether loophole. It’s the equivalent of constructing a mighty fortress—but with the huge, crumbling opening in its ramparts. It’s not just ineffective — it’s dangerous — to regulate domestic issuers while letting offshore entities like Tether continue to do business with no oversight. It not only disadvantages US companies, but makes the jurisdiction a breeding ground for all manner of illicit activity.
The answer is simple. The solution is a robust extraterritorial provision. The fact is, if you want to continue to be an influential player in the US market, you need to start playing by US rules. Anything less is a tepid, half-hearted measure that will inevitably fall short. This isn’t about protectionism, this is about consumer protection and making sure we have a level playing field and there’s not bad actors.
Give Treasury Power To Fight Bad Actors
Real risks – including money laundering and sanctions evasion – exist and stablecoins can be misused for these activities. Overregulating or stifling legitimate use cases stifles innovation. It’s exactly like outlawing cars because a few people decided to drive while intoxicated.
We need to make sure we are providing the Treasury Department with the tools and resources that they need to pursue the bad actors. This grants OFAC the authority to issue blocking orders against on-chain protocols facilitating illegal transactions. They will approach these protocols the same way they would with a traditional USD transaction. It’s all about updating our regulatory framework for the digital age—not about attempting to fit square pegs in round holes. More than that, this is about safeguarding the most defenseless among us. The people who pay the price for the unintended consequences of illicit finance most of all are everyday people, particularly in marginalized communities.
States AND Feds: A Powerful Partnership
Yet there is an ongoing game of chicken between state and federal regulators, each looking to assert jurisdiction over the other. The truth is, we need both. States bring local expertise and agility, while the federal government provides broader oversight and resources.
The answer is a system of shared regulation between the two for big issuers, adopting the bests of both worlds. This isn’t about turf battles, it’s about ensuring we have a strong and adaptable regulatory structure.
Stop Financial Distress Spreading Like Wildfire
Now picture that same stablecoin issuer going under, triggering a chain reaction across the entire financial system. That’s the worst-case scenario we must avoid at all costs. To this end, we should establish robust group-level activity and affiliation limits on stablecoin issuers, analogous to the Bank Holding Company Act’s requirements. This would limit the potential for financial distress to spread and prevent large tech platforms from wielding undue market power. It’s like putting up firewalls before the fire begins.
Additionally, a tailored resolution procedure for failed stablecoin issuers, similar to the bank resolution process, is key. This facilitates their faster and more complete repayment to token holders, reducing contagion. Standard Chapter 11 proceedings just aren’t capable of addressing the different set of challenges presented by stablecoin insolvencies.
Protect Users, Empower Communities
We think, at the end of the day, that this is about protecting ordinary users and promoting financial inclusion. We can enact stronger consumer protections around disclosure, settlement process, fraudulent transfer and dispute resolution.
Stablecoins have the potential to empower marginalized communities by providing access to financial services that are currently unavailable or unaffordable. They can lower transaction costs, expand financial inclusion, and spur economic development in communities long unserved or underserved by traditional financial institutions.
Let’s mention the impact on consumer privacy. Restoring consumer privacy protections under the Gramm-Leach-Bliley Act must be a priority. We should ensure custodial standards cover all stablecoins, not just the ones promised as collateral.
We want to be sure that they don’t discourage or have an outsized impact on smaller, more community-based stablecoin projects that are looking to serve those marginalized communities. Market-neutral policies must be implemented now to ensure equitable access to an emerging stablecoin market.
In creating more effective consumer protections, Congress should look for ways to protect consumers without stifling innovation. Rules need to match the risks and rewards posed by various flavors of stablecoins.
So we’re about to explore all the awesome ways you can use stablecoins. Their promise for cross-border payments, microfinance, charitable giving — we can dig into those!
Ultimately, getting stablecoin regulation right is not just about managing risk. It's about shaping the future of finance. Here’s how the US can be a leader in determining the best possible future. To achieve this, we need to take an equitably ambitious, nuanced, and future-oriented approach. Let's not squander it.
What's Next?
Let's explore the potential for stablecoins to be used in new and innovative ways, such as for cross-border payments, microfinance, and charitable giving.
Ultimately, getting stablecoin regulation right is not just about managing risk; it's about shaping the future of finance. The US has the opportunity to lead the way, but only if we adopt a thoughtful, balanced, and forward-looking approach. Let's not squander it.
